HW 3. - Name: _ Economics 2105 Fall 2007 Homework #3...

Name: ________________________ Economics 2105 Fall 2007 Homework #3 Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. ____ 1. Suppose the CPI was 108 in 1967, and suppose one must spend $936 today to obtain the same basket of goods and services that could be bought for $200 in 1967. Then today’s CPI is a. 410.10. b. 433.33. c. 468.00 d. 505.44. ____ 2. In the country of Hyrkania, the CPI in 2000 was 120 and the CPI in 2001 was 132. Jake, a resident of Hyrkania, borrowed money in 2000 and repaid the loan in 2001. If the nominal interest rate on the loan was 12 percent, then the real interest rate was a. 12 percent. b. 10 percent. c. 2 percent. d. impossible to determine without knowing the base year for the CPI. ____ 3. An indexed government bond pays 3% nominal interest, a non-indexed government bond pays 7% nominal interest, and a corporate bond pays 12% nominal interest. What is the default premium for the corporate firm? a.

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